Helping Your Children Pay for Grad School

My 24-year-old daughter is about to start a graduate program, which she is expected to complete in 15 months. We have $13,000 to give her, which is about what her program should cost. Should we give her the money now? Or should we let her use Stafford loans to borrow the money she needs, then give her the $13,000 at the completion of her schooling?

Don't give your daughter the money yet. Because she's an independent student, parents' income and assets don't have any impact on her eligibility for financial aid. But giving her the money could make a big difference in her aid award. "If you give her the money now, it will be considered untaxed income, and she'll be assessed on it 50%," says Gary Carpenter, of College Planning Services in Syracuse, N.Y. Any money in her account will also be assessed as an asset at 20% when determining aid eligibility.

Carpenter recommends waiting to give your daughter the money after she files her last Free Application for Federal Student Aid before graduating, which could be in January 2009. At that point, the money won't have any impact on financial aid eligibility as long as she graduates when expected.

Carpenter says your daughter will qualify for at least $12,000 in unsubsidized Stafford loans and may get offered $8,500 in subsidized loans. Interest won't start accruing on the subsidized loans until she graduates. At that point, it's safe to give her the $13,000 (or whatever it's grown to then) to help her pay off the loans immediately.